annual report 2011

IOOF | annual report 2011
5 Risk management
IOOF risk management framework
Risk is defined by IOOF as any event which hinders the
sustainable achievement of Group objectives and results,
including a failure to exploit opportunities. The Group’s
strategy to manage risk involves the identification of risks by
type, impact and likelihood, implementation of controls to
mitigate risks, and continuous monitoring and improvement of
the procedures in place.
The Group’s objective is to satisfactorily manage its risks in
line with the Group’s Risk Management Policy set by the
Board, and this aligns to International Standard ISO 31000
Risk Management. Procedures are put in place to control and
mitigate the risks faced by the Group and vary depending
on the nature of the risk. The Group maintains a framework
to ensure regulatory compliance obligations are managed
in accordance with Australian Standard 3806 Compliance
Programs. The Group’s exposure to all material risks is
monitored by the Head of Risk and this exposure, and any
anticipated risk exposure, is regularly reported to the Risk and
Compliance Committee, and the Board.
The Group’s income and operating cash flows are indirectly
impacted by changing market conditions. Its exposure is
through the impact of market changes on the level of funds
under management and administration, and consequently
management fee and service fee revenue. Information has
been provided below only on the direct impact of changing
market conditions to the Group’s income and operating cash
flows.
The financial condition and operating results of the Group are
affected by a variety of financial and non-financial risks. The
key non-financial exposures are to operational risk and a failure
to meet regulatory compliance obligations. The nature of the
financial risk exposures arising from financial instruments, the
objectives, policies and processes for managing these risks,
and the methods used to measure them are detailed below.
Financial risk
The financial risk management objectives, policies and
processes and the quantitative data about the exposure to risk
at the reporting date, as set out in the remainder of this note,
excludes the benefit funds and the controlled unit trusts. This
is because the risks associated with financial instruments held
by the benefit funds and controlled trusts are borne by the
policyholders and members of those funds and trusts, and not
the shareholders of the Group. There is no direct impact on
the net profit or the equity of the Group as a consequence of
changes in markets as they apply to financial instruments held
by those funds and trusts at the reporting date.
Similarly the objectives, policies and processes for managing
the risks of the Group are separate and distinct from those for
the benefit funds and trusts. The funds and trusts are managed
under extensive regulatory requirements, and in accordance
with specific investment guidelines, risk management
strategies, risk management plans, and product disclosure
statements. The Group is managed under a set of separate
corporate policies and review processes that are directed
toward the interests of the shareholders of the Group.
Information in relation to financial risks associated with the
benefit funds and controlled trusts is available in their Product
Disclosure Statements and the individual annual financial
reports of those trusts.
Further information in relation to the Australian Accounting
Standards requirement to consolidate the benefit funds and
controlled trusts in the consolidated financial statements of the
Group is available in Note 3(a) Basis of consolidation.
The following table shows the value of financial instruments
held directly and actively managed by the corporate entities
within the Group in relation to its shareholder interests. It
shows the financial instruments, as reported in the notes to the
financial statements, excluding any elimination entries made
upon consolidation with the funds and trusts. The adjustment
of these eliminations has the effect of identifying the interentity
financial instruments that are also actively managed by
the Group.
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